Distribution, Competition, and Antitrust / IP Law

An Unaccepted Offer of Judgment Won’t Moot a (Class) Claim

In Campbell-Ewald Co. v. Gomez, 577 U.S. ___ (2016), the Supreme Court held that an unaccepted offer of judgment under Federal Rule of Civil Procedure 68 does not moot a named plaintiff’s claim, and, therefore, the named plaintiff can still seek class certification.

The case involves text messages allegedly sent without consumers’ consent in violation of the Telephone Consumer Protection Act. Prior to class certification, the defendant offered judgment in the form of the named plaintiff’s full alleged damages and costs as well as an injunction against the defendant’s involvement in unsolicited text messaging. (The Act does not provide for attorney’s fees.) The plaintiff rejected the offer.

Applying “basic principles of contract law,” the Court (Ginsburg, J.) held that the defendant’s offer of judgment, once rejected, had no continuing efficacy. The parties therefore remained adverse.   Further, a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted. The Court did not decide whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to plaintiff and the court then enters judgment for the plaintiff in that amount.

Justice Thomas concurred in the judgment but would have rested on the common-law history of “tenders.” Chief Justice Roberts dissented, emphasizing that the federal courts must independently evaluate whether there is a live case or controversy. “[A] plaintiff is not the judge of whether federal litigation is necessary, and a mere desire that there be federal litigation – for whatever reason – does not make it necessary.” (Emphasis in original.) Under constitutional principles, “[t]he agreement of the plaintiff is not required to moot a case.” “If the defendant is willing to give the plaintiff everything he asks for, there is no case or controversy to adjudicate, and the lawsuit is moot.”  Chief Justice Roberts also noted that Gomez did not have standing to seek relief based solely on the alleged injuries of others, and Gomez’s interest in sharing attorney’s fees among class members or in obtaining a class incentive award does not create Article III standing.

Although the Supreme Court has in recent years been tightening up the standards for class certification, see, e.g., Comcast Corp. v. Behrend, 133 S.Ct. 1426 (2013), Gomez is evidence that the Court will not automatically approve arguments that limit the ability of plaintiffs to seek class certification.

Twombly’s Teeth

Occasionally a would-be plaintiff (or counter-claimant) asks whether one can file an antitrust claim and then get some discovery to back it up.

This is not a good game plan.

In Eastman v. Quest Diagnostics Inc., 2016 U.S. Dist. LEXIS 1282 (N.D. Cal. Jan. 6, 2016) (Orrick, J.), the plaintiffs sought pre-complaint discovery from the defendant, including its fee-for-service pricing for the years 2013 and 2015 for six geographic areas.  The court refused to allow such discovery.  Citing Twombly’s concerns about the expense of antitrust discovery, the court wrote that “[t]he Rule 8 screening function would be rendered toothless if [plaintiff] were entitled to pre-complaint discovery in order to fish for conduct that gives rise to an antitrust violation.” (cit. omit.).

The court noted that not all the information necessary to plead a plausible claim was in the hands of the defendant.  Nor was it clear how the pricing information would be sufficient, on its own, to enable plaintiffs to cure the deficiencies in their complaint, because plaintiffs would still lack pricing information for the defendant’s competitors, and “would lack a coherent and plausible explanation as to why it is appropriate to assume that Quest’s pricing is attributable to its alleged antitrust violations.”

In antitrust cases, perhaps more than in others, it is important to gather the facts first before filing the claim.

“And the Plaintiffs Don’t Have to Sue My Competitors Because? . . . .”

One of the pet peeves of antitrust defendants is that the joint-and-several liability rule often means that plaintiffs can pick and choose which defendants to sue. (Plaintiffs will say – that’s a design feature of the antitrust laws, and not a bug.) In Ward v. Apple, Inc., the Northern District of California made it harder for plaintiffs to do the picking and choosing. Yesterday, the Ninth Circuit pushed the pendulum back, making it more difficult for defendants to argue that the picking and choosing is problematic.

In a nutshell, the plaintiffs (a putative class of consumers) alleged that Apple conspired with AT&T Mobility (ATTM) to violate the antitrust laws in connection with Apple’s agreement with ATTM that ATTM would be the exclusive provider of voice and data services for the iPhone. According to plaintiffs, the exclusivity agreement enabled ATTM to charge supra-competitive prices for wireless services; Apple allegedly shared in ATTM’s revenues. Simplifying here a complex procedural history, the plaintiffs eventually brought suit against Apple only. Despite the general rule that plaintiffs can pick the tortfeasors they want to sue, the district court held that ATTM was a “necessary party” under Federal Rule of Civil Procedure 19.

The Ninth Circuit reversed and remanded for further proceedings. It held that an absent (alleged) antitrust co-conspirator can, under certain circumstances, be a required party under Rule 19 – at least where the absent party has “legally protected” interests to defend. However, it set the bar fairly high. In particular, the court rejected:

  • Apple’s argument that ATTM’s possible increased regulatory scrutiny gives ATTM a legally protected interest (though the court did not decide whether such scrutiny could ever constitute a sufficient interest);
  • The argument that reputational interests can make a party a required party under Rule 19; and
  • The argument that ATTM’s particular contract rights amounted to legally protected interests.

In short, it is once again harder – though not impossible – to argue that all alleged co-conspirators must be joined as defendants in an antitrust suit.

Injunctive Relief, but not Damages Class, Certified in NCAA Student-Athlete Litigation

English: National Collegiate Athletic Associat...

(Photo credit: Wikipedia)

In In re NCAA Student-Athlete Name & Likeness Licensing Litigation, 2013 U.S. Dist. LEXIS 160739 (N.D. Cal. Nov. 8, 2013) (Wilken, J.)., the Court certified a class of current and former student-athletes seeking injunctive relief, but declined to certify a damages class. The case illustrates the importance for plaintiffs of tying a theory of harm to damages to all purported class members – or for defendants, the importance of finding a disconnect between the two.

The plaintiffs were or are NCAA Division I football and basketball student-athletes. They allege that the NCAA misappropriated their names, images, and likenesses in violation of their statutory and common law rights of publicity. Some of the named plaintiffs also allege that the NCAA violated federal antitrust law by conspiring with Electronic Arts and the marketing firm Collegiate Licensing Company to restraint competition in the market for the commercial use of their names, images, and likenesses.

Plaintiffs allege a market for the acquisition of group licensing rights for the use of names, images and likenesses in the broadcasts or rebroadcasts of Division I basketball and football games and in videogames featuring Division I basketball and football. Plaintiffs challenge the NCAA’s rules, which allegedly prohibit student-athletes from receiving compensation for the commercial use of their names, images, and likenesses. Plaintiffs also seek monetary damages as a result of the NCAA’s alleged plan to fix at zero the price of student-athletes’ group licensing rights.

The Northern District of California had little difficulty in certifying a class of plaintiffs seeking injunctive relief against the NCAA. However, the Court declined to certify a Rule 23(b)(3) damages subclass, for several reasons.

First, in the Court’s view, the Plaintiffs had failed to satisfy the manageability requirement because they did not identify a feasible way to determine which members of the damages subclass were actually harmed by the NCAA’s allegedly anticompetitive conduct. In the Court’s view, the Plaintiffs did not address or overcome the “substitution effect” – i.e., the fact that if athletes had stayed in college because the NCAA’s rules were different, they would have displaced other student-athletes on their respective teams. Those displaced student-athletes would have either been forced to play for other Division I teams or simply lost the opportunity to play in Division I altogether. In either case, they would not have suffered injuries as members of the teams for which they actually played.

Second, the Court concluded that Plaintiffs had not adequately proposed a method to determine which student-athletes were actually depicted in videogames during the relevant class period, or which student-athletes appeared in game footage during the relevant time period.

These sorts of substitution effects occur with some frequency, and require careful attention.

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It’s Tough to Prevail in Private Consumer Class Challenges to Mergers

Whole Foods Market

Whole Foods Market (Photo credit: Wikipedia)

In Kottaras v. Whole Foods Market, Inc. (D.D.C. Jan. 30, 2012), the court refused to certify a purported class of people who had bought premium, natural or organic products from Whole Foods in the Los Angeles area after Whole Foods purchased the Wild Oats food chain. On April 20, the D.C. Circuit refused to hear an appeal from the court’s order, and last week the plaintiff agreed to entry of judgment against her.

Several years ago, the FTC had sought to enjoin the merger, but ultimately reached a divestiture deal with Whole Foods. (No Los Angeles County stores were divested.) As to the private consumer challenge, which was brought after the FTC settlement, the district court concluded that injury to individual class members could not be proven through class-wide evidence. Although some shoppers may have paid more because of the merger, others may have paid less, depending upon the mix of products they purchased. (The prices of many products apparently did decline post-merger.) Figuring out which shoppers suffered “net” harm because of price movements resulting from the merger would require analyzing each consumer’s purchases and individual product price fluctuations. These very granular inquiries prevented class-wide proof or even a conclusion that all class members had been injured.

The moral of the story is that establishing injury through class-wide proof remains an important hurdle in antitrust class actions, one that can be especially difficult to surmount in a merger case.

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N.D. Cal. Refuses Separate Direct and Indirect Trials in LCD Cases

In re: TFT-LCD (Flat Panel) Antitrust Litigation, No. M 07-1827 SI (May 21, 2012) (Illston, J.)

In a short order and without expressing her reasoning, Judge Illston refused to conduct separate direct purchaser and indirect purchaser trials in the LCD price-fixing class actions.  The cases will instead be tried together in May.  The direct case includes one defendant (Toshiba).  Three defendants (AU Optronics, LG Display, and Toshiba) remain in the indirect class case.

Antitrust Plaintiffs Sanctioned for Pursuing Overbroad Third Party Discovery

In re NCAA Student-Athlete Name & Likeness Licensing Litigation, No. 09-cv-01967 CW (NC) (Feb. 27, 2012) (Cousins, M.J.).

Parties sometimes exercise little thought in serving non-parties with document subpoenas, figuring that it’s best to cast as wide a net as possible at the beginning, and that they can worry about the details later. That may not be the best strategy.

NCAA

In NCAA, plaintiffs, former student-athletes who played Division I basketball and football at NCAA schools, brought antitrust claims, claiming that the NCAA and its members conspired to deny them compensation relating to the use of their names, images, and likenesses. The plaintiffs served subpoenas on various third parties, including The Big Ten Conference and the Fox Broadcasting Company, seeking information on the use of names, images, and likenesses in recorded television broadcasts.

The third parties objected to the subpoenas, and the plaintiffs moved to compel. The Court (Cousins, Magistrate Judge) found that the requests were over broad and unduly burdensome and denied the plaintiffs’ motions. The court concluded that there was “no evidence that antitrust plaintiffs considered additional limitations to the breadth of the document requests” based on the recipients’ very specific objections, but instead “rejected reasonable attempts to compromise.” The Court also imposed sanctions on the plaintiffs, ordering them to pay for the costs incurred by the non-parties in connection with the plaintiffs’ motions.

It’s always best to try to negotiate the scope of subpoenas and work out appropriate compromises. Litigating motions to compel can be at best a distraction and at worst can result in a denied motion and an order to pay costs.

 

N.D. Cal. Addresses Form of Attorneys-Eyes-Only Protective Orders

Barnes & Noble, Inc. v. LSI Corp., No. C-11-2709 EMC (LB) (Beeler, Magistrate J.).

On February 23, Magistrate Judge Beeler entered an order in an area that is usually subject to stipulation: the form of a protective order. The Court found that each side’s proposed protective order was insufficient. B&N’s proposed order inappropriately would have allowed its in-house counsel access to a “broad swath” of defendants’ attorneys-eyes-only-designated material. Defendants’ proposed protective order inappropriately would have barred B&N’s in-house counsel from license agreements that likely will be necessary for those attorneys to participate in meaningful settlement discussions. The Court directed the parties to present a new protective order compliant with the Court’s reasoning.

Barnes & Noble’s Patent Infringement Affirmative Defenses (Alleging SSO Fraud) Survive Motion to Strike

Barnes & Noble, Inc. v. LSI Corp., No. C-11-2709 EMC (Chen, J.)

On February 2, Judge Chen refused to dismiss affirmative defenses pled by Barnes & Noble against infringement claims concerning patents related to the Barnes & Noble Nook’s 3G, WiFi, and audio technology.  Some of the defenses were based on allegations of unenforceability due to standard-setting misconduct arising from alleged fraud on Standard Setting Organizations (“SSOs”).  In making its ruling, the Court conducted a fairly extensive analysis of the elements (misleading statements or omissions, duty to disclose, essentiality of the patents, intent, and reliance) and whether they were sufficiently pled.  The Court also found that Barnes & Noble had adequately pled that the SSO conduct of Lucent, a predecessor of LSI, could be imputed for purposes of unenforceability of patent rights, even if it could not be imported for purposes of tort-like antitrust liability.

The Court did dismiss two defenses relating to laches and judicial estoppel.

A Way To Avoid Arbitration?

In EA Independent Franchisee Ass’n, LLC v. Edible Arrangements International, Inc. (D. Conn. No. 3:10-cv-1489-WWE, July 19, 2011) (no link yet), the court denied the franchisor’s motion to dismiss for lack of standing, allowing an association of franchisees to assert a declaratory judgment claim.  (The association alleges various failures to disclose affiliate relationships and undisclosed fees associated with franchisees’ mandatory use of an online ordering system, among other things.)

The court allowed the suit to proceed even though the EA franchise agreement requires arbitration of disputes.  The association has no right or obligation to arbitrate on behalf of its members, the court concluded.

Lesson: even if a franchisor has arbitration clauses in all its franchise agreements, its franchisees may neverthless find (or invent) a novel vehicle that takes them directly to federal court.

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